Commercial Real Estate Loans

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

The loan-to-cost ratio, or LTC, is used in commercial real estate to calculate the percentage a construction or rehabilitation project's loan amount represents relative to the total project cost.

Internal Rate Of Return (IRR) and Commercial Property

Internal Rate Of Return (IRR) and Commercial Property

An internal rate of return (IRR) is a calculation investors use to determine the likely rate of growth of capital (as it relates to both time and yield) for a particular commercial real estate investment opportunity.

Cash on Cash Returns For Commercial Real Estate Investments

Cash on Cash Returns For Commercial Real Estate Investments

A cash on cash return calculation determines the amount of annual income an investor earns on a piece of real estate when compared to the amount of cash invested.

What Is Defeasance?

What Is Defeasance?

Defeasance is a strategy that permits repayment of a commercial property loan on a property, to facilitate sale or refinance.

Capitalization Rates (Cap Rates) in Commercial Real Estate

Capitalization Rates (Cap Rates) in Commercial Real Estate

The Capitalization rate, or "Cap Rate" is calculated by dividing the net operating income of a property by its market value. This is the key tool appraisers use to determine the value of a commercial property and is the key metric behind the income capitalization approach to valuation. 

Understanding Replacement Reserves

Understanding Replacement Reserves

Replacement reserves is a budget line item used by commercial property underwriters to address periodic maintenance on systems that wear out faster than the building itself.

Loan Constant: Mortgage Constant

Loan Constant: Mortgage Constant

The loan constant, also known as the mortgage constant, is the calculation of the relationship between debt service and loan amount on a fixed rate commercial real estate loan. It is the percentage of the cash paid to service debt on an annual basis divided by the total loan amount.

Soft Step Down In Commercial Property Loans

Soft Step Down In Commercial Property Loans

A step down requires the payment of a set percentage of the outstanding amount of the loan. That percentage declines as the loan ages. While a typical step down might decline by 1% a year, for example 5 % in year one, 4 % in year two and 3 % in year three, a soft step down starts at a lower rate and declines less quickly. While a step down might have terms that equate to 5-4-3-2-1, a soft step down might be 3-2-2-1-1.

Carve-Out Guarantees in Commercial Real Estate Finance

Carve-Out Guarantees in Commercial Real Estate Finance

The carve-out guarantee gives a lender the authority to require payment for a commercial real estate loan beyond the actual value of the property if foreclosure occurs.

Step-Down Prepayment Penalties on Commercial Property Loans

Step-Down Prepayment Penalties on Commercial Property Loans

Generally, this is a straightforward calculation based on the remaining balance. It is called a "step-down" penalty because the amount gets smaller the longer the loan is in place.For example, a typical step-down might be 5 % of the outstanding balance in the first year, 4 % in the second year, 3 % in the third year, and so on.

Earnouts in Commercial Real Estate Loans

Earnouts in Commercial Real Estate Loans

An earn out is an agreement by the lender to increase the loan amount at the advent of a certain event. Earn outs are structured such that the additional money can be handled by the operating performance of the property. For example, more money can be released in the form of an earn out if the property has gone through renovations, has upgraded its tenant’s minimum income criteria or increased its tenant occupancy.

NOFA: Notice of Funding Availability in Commercial Real Estate

NOFA: Notice of Funding Availability in Commercial Real Estate

NOFA or Notice of Funding Availability is a statement issued by the GRRHP  (under the USDA) in the Federal Register. The statement will contain information on the amount of funding to develop homes available for each area along with the period for which the funds will be available for.